Do you think you need to create a debt repayment timeline? Well, if you think that it will be hard for you to get out of debt, you might want to create a plan that will help you be successful at it.
The truth is, only 3 out of 10 American carrying a credit card balance are positive that they can pay it all off this year. For the rest, it can be assumed that they are resigned to the fact that they cannot completely pay it off.
If you think that you cannot pay off your balance within the year, you do not have to give up on it. You also do not have to stress out about how long it will take for you to finish paying off your debts.
You just have to create a debt repayment timeline so you have an idea how long it will take before you achieve debt freedom.
Why do you need a debt repayment timeline?
According to one survey, 66% of their respondents reveal that paying down debt is a top concern that they have for this year. While a lot of people have made this one of their financial resolutions, it does not automatically mean they will be successful. It is a known fact that a lot of people who set financial resolutions end up not meeting their goals. Admittedly, it can be hard to completely pay off debts. There are so many temptations that will cause you to spend your money on something else other than your debt payments.
This is why having a debt repayment timeline is important. To be specific, there are three reasons why you need to create one.
Organizes your finances while paying off debt
First of all, it will help organize your finances. The timeline will tell you how long you need to pay for your debts. This should give you a general idea of how much you need. It will allow you to determine the amount that you need to get from your budget. It will help organize where your money should be going.
Helps you visualize the finish line
Another benefit of having a debt repayment timeline is giving you a clear idea of when you will finish paying off your debts. Will it be after a couple of months? Or will it take years to complete? Knowing how long you have to pay off the debt completely can help motivate you in some way. When you are feeling tired or frustrated, you can look at the timeline. You can either look at how far you have come or how long you have left to pay. It all depends on what you think will help you get over your frustrations. It can give you a really good feeling if you realize that you only have a couple of payments left before being debt free.
Allows you to set other financial goals
Since you know when the debt will end, you can start setting other financial goals. For instance, you can save for retirement while consolidating debts. You can opt to save a little at first. Then when you pay off half of the debt, you can start contributing more so you can build your funds faster. Of course, this can be applied to your other saving goals like the down payment of your own house or even a vacation.
Tips to create a debt repayment timeline
Now that you understand how important it is to have a debt repayment timeline, how will you create one? Here are the steps that you need to follow.
Get the total debt that you owe
List down all the debts that you owe. Start with the debts that you know you can combine without being charged with prepayment penalties. This includes credit card debts, medical bills, and other unsecured loans. Then you can list the other debts that you owe. Take note of the minimum payment requirements for each of your credit accounts.
Set different repayment periods
Basically, you want to find out how much you have to pay if you want to be debt free in a year, two years, or even longer. The shorter the repayment period, the bigger the amount you have to pay each month. This will help you save a lot of money on interest.
Look at your budget plan
This will help you compare your income and expenses to see how much you can really afford to pay towards your debts. Scrutinize your expenses that figure out how you can save on some expenses. It is very important that you manage your money wisely as you go through your debt payments. You want to give the highest debt payment that you can afford. If you can cut back on something or replace it with something cheaper, that can make a difference in your debt repayment timeline. You can contribute more each month and possibly get out of debt faster.
Decide how much you can pay each month
This will play an important role in determining how long your repayment program will be. As mentioned, the more you can pay each month, the shorter the debt repayment timeline. So make sure you consider how much you will sacrifice so you can pay more.
It is easier if you consolidate your debts. This will leave you with just one debt to pay. And if you do it correctly, you can end up with a very low-interest rate. That will help you save more money as you pay off the debt.
Plot the payments on the timeline
Finally, you want to plot all of these to determine your final debt repayment timeline. If you were not able to consolidate all your debts, list the credit accounts that you currently have according to priority. You want to ensure that the debt that needs to be paid off first is on top of the list. This will help you create a clear plan. As you plot the payments, you can easily calculate how long it will take you to pay off your debts.
Once you have completed this, it is only a matter of following the debt repayment timeline until you have achieved full debt freedom.